Funmurphys: the Blog

The Tragedy of Declining Births

The Tragedy of the Commons is the classic illustration of why private property works and communal property doesn't.

I see the tragedy repeating itself in most government run old age support/pension systems in the developed world. In the original example, it was grazing land that was held in common. In the developed world, it is children who are held in common, or more accuately, their productivity. Not that long ago, children were not only cheap to raise, but a source of labor in their youth and support in a parent's old age. Children were a modest investment with a large payout. That's one reason families were larger - large families made economic sense. That is no longer the case - as children cost on the order of $250,000 and provide very little labor and support directly back to their parents. Large families no longer make economic sense; in fact children no longer make economic sense at all anymore for most parents in the developed world.

Where does the money come from for the government to support retired/old people? Taxpayers. And who are these taxpayers? The children and the grandchildren of the retired/old people. But the support a government pensioner receives is not related to how many children that person raised.

Let's dispose of one objection right away - that government saves the contributions of individuals, invests it wisely, and then returns the principle and interest after retirement. Social Security, and other defined benefit plans that do not include some form of individual accounts, are all pay as you go systems - today's retirees are paid by today's workers. Our own government has skimmed money off the top by setting the tax rate higher than it needs to be, setting up a "trust fund" which it immediately takes all the money out of the trust fund and spends but leaves an IOU behind. The amazing thing is how this bit of theft manages to fool so many people (maybe not so amazing when you consider how many people still fall for the Nigerian money transfer fraud) in this country.

So the tragedy is that we have developed a system that removes the clear link (OK, the system doesn't just hide the link, it tries to substitute a fraud in its place) between where a government payment comes from and where it goes. Parents might be too proud or too caring to take money from their own children, but are perfectly fine with taking the money from everybodies children. So each recipient expects a comfortable retirement but has no incentive to provide for it; in fact, the recipient pays a penalty through the high cost of raising a child to provide for it. Is it any wonder than that societies that set up such government funded retirement schemes face collapsing birthrates and unsustainable finances?